How To Better Manage Your Student Loans And Graduate With Less Debt

Student loan debt has surpassed total revolving credit card debt in the United States, and the momentum is only just beginning.There is now genuine concern about the sustainability of this debt, as 58.8% of students are graduating with loans and other financial obligations.

With the right information, conscientious students (and parents) can owe and stress less.

Here are a few ideas that will help you better manage and understand your student debt.

Understand Your Loans: Federal, Private, or Both?

Government or federal student loans are very different from private student loans. Make sure you know what type you have (or will have) after graduating and what the interest rate is. In general, federal loans are less expensive (lower interest rates/fewer fees) and have more flexible payment terms (like deferment options).

Federal loans are primarily needs-based, so sometimes you can’t rely on them to cover 100% of your costs while you’re studying. Some students end up with both types of loans and quickly get confused after graduating because the amounts and options vary so dramatically depending on the type. In short: It’s worth the time required to investigate the financial details.

At least know what type(s) of loans you will need or have and how much they are costing you in interest. Don’t forget to consider tuition inflation in your projections when calculating how much you will need to borrow. The new Consumer Financial Protection Bureau is beginning to provide good online resources for students to compare schools and financial options as well.

100k Salary Doesn’t Mean You Can Afford 100k of Debt

A few factors go into how much debt you can realistically afford after graduation. Average salaries in your field are not a good indicator because, depending on the economic climate and your experience level, you may get a lot less than what you expected.

Also, remember that the highest paying salaries often mean you have to live in an expensive city like San Francisco or New York. This means you will probably spend upwards of a third of your income on your housing alone (sometimes more), another third other living expenses and, after taxes, be left with a lot less than you expected to apply to your debt.

You should aim to have no more debt than you can pay off (realistically) in less than 24 months post-graduation. Of course, this may depend on whether or not you are getting an expensive professional graduate degree in law, medicine or other program.

Last but not least, give yourself room for changing interest rates or emergencies.